OnMarket Review – Platform For Equity Crowdfunding

This is an OnMarket review, an Australian equity crowdfunding platform which also facilitates IPOs and private placements.

OnMarket Attitude To Curation:

OnMarket favors more careful screening of the companies that are allowed to be published on their platform. Every month, their team decides to work with (on average) approximately one or two of the 20 or so companies that approach them.

Here is how they decide which of these to go ahead with: OnMarket will look into understanding the company’s business model, conduct thorough due diligence on their founders and senior management, and dig deep into the investment thesis to make sure that it is palatable to their investor database. Putting companies through this kind of rigorous analysis closely mirrors the background of OnMarket’s team members, who mostly come from careers in advisory, capital markets and M&A.

One of the reasons for this approach is that the Australian landscape is still coming to terms with awareness of equity crowdfunding. OnMarket’s view is that a lot of trust still needs to be built with investors if equity crowdfunding is to take its place as an accepted part of the early-stage investment landscape. OnMarket believes that this necessitates an investor-first approach – which means being careful about which companies are actually fit for equity crowdfunding, and taking the time to do a lot for investor education.

When I spoke to OnMarket’s Tim Eisenhauer, he emphasized that their platform is not interested in maximizing the volume of companies being listed there. Rather, they are taking the approach of working deeply with a smaller number of quality companies, and “holding hands” as they work to get them ready to fund. This should mean that those that actually launch should have a greater chance of succeeding, once they come out publicly.

Who Can Use OnMarket:

Sector Focus:

OnMarket’s website has the tagline “Invest with Impact”. This points to the fact that they like companies which are disruptive – providing a fresh solution to a real problem. Beyond that, OnMarket are very much sector agnostic, so long as they like the story and think they can assist that company get the funding they require. Additionally, it is necessary to have a business model which can be fairly easily understood by ordinary investors.

Stage Focus:

OnMarket states that they can help with the full life-cycle of capital raising – from seed, series A, series B, pre-IPO, all the way to IPO. Cashflow stability isn’t essential – part of equity crowdfunding is being comfortable with risk. However, the company needs to be de-risked to a certain extent, through having a minimum viable product and revenue, before listing.

One of the interesting things about OnMarket is that they are focused particularly on working with companies which have a reasonable shot of achieving liquidity within 48 months or less. Shares of equity in startups always come with uncertainty over when an investor might be able to realize a return, but it will be helpful to your chances of listing with OnMarket if you can tell a story which includes a plan for achieving investor liquidity, either through a business sale or marketplace listing.

Border Restrictions:

The Australian equity crowdfunding regulations mean that OnMarket is only open to unlisted companies which have their principal place of business in Australia, and which have a majority of directors residing in Australia. Overseas investors are able to invest in OnMarket offers, facilitated by paying through Payment Express.

Raise Size Restrictions:

OnMarket sees their “sweet spot” in helping companies with a minimum funding goal of A$400,000. The Australian equity crowdfunding regulations have a legal maximum raise size of A$5 million, and OnMarket believe they can assist companies right the way up to this legal maximum.

In terms of the minimum investment per investor, OnMarket can facilitate quite small minimums of as little as A$50 per investor, if that is in keeping with the company’s fundraising goals. This was the threshold they used when, in April 2018, OnMarket helped DC Power complete the world’s largest ever equity crowdfunding offer as measured by the number of investors (14,950). They structured the deal this way because DC Power wanted to use equity crowdfunding to bring on board the largest number of new investors possible – based on the rationale that it could help them grow their customer base. More normally, OnMarket would recommend a minimum parcel size of around A$250 – A$500.

How Can They Help Startups & Growing Companies:

One of OnMarket’s core skills is being able to boil down a complex marketing message into something simpler, in order to achieve cut-through with investors. “Many founders are so close to their business that they find it difficult to know what information to include, and what is going to be distracting. They are often very good at marketing their product, but they are not so good at marketing their business model – and marketing their company’s cash-generating potential is really what equity crowdfunding is really all about”, explains Tim Eisenhauer.

Along with this, OnMarket can assist with the offer preparation – including:

Putting together their offering memorandum

Documentation, including shareholder deed, company constitution and so on

Walking through the timetable and what needs to happen from a marketing standpoint

Financial modelingSome of these services can come at an additional cost to the company raising funds.

What’s Special About OnMarket?

A point of difference for OnMarket is their team member’s professional experience. Tim Eisenhauer explained his take on the spectrum of the major platforms in Australian equity crowdfunding as follows: “Birchal come from the rewards crowdfunding space, through their early work on the Pozible platform, while Equitise were pioneers in getting the equity crowdfunding legislation to where it is today. I think that what makes us different from both of them is that we come from more corporate backgrounds. We are able to bring investment banking experience to startups looking to raise money from the crowd. We are also able to offer a full-service suite of advisory services, as part of our engagement while working with a company”.

Further, OnMarket believes that their level of investor engagement sets them apart. This is a crucial factor to weigh up for companies when making the decision over which platform to go with, to know that they can expect some money to come from the platform’s crowd (as distinct from the company’s crowd). OnMarket’s investor database enjoys 30 – 40% e-mail open rates (which is very high, by all digital marketing standards). Part of the reason for this level of investor engagement is the positive experience which many of their investors have already experienced, due to OnMarket’s focus on working with companies which have a liquidity event on the near-term horizon.

Advice For Companies Wanting To List Here:

OnMarket emphasized the need to have an interesting business with a unique point of difference. Companies which are “too mainstream”, providing a standardized product or service are quite difficult to get the crowd excited about. There needs to be some kind of grand vision which makes creating engaging content possible. “If I am watching your crowdfunding video, I need to be engaged and want to learn more”, was OnMarket’s advice for crowdfunding success. This fits with OnMarket’s stated mission of wanting to help people to back businesses with big ideas.

An educated database with whom you communicate with regularly is also going to be very helpful for raising money through OnMarket. It isn’t solely about having a huge e-mail list (though that certainly helps), but also about how well you have been engaging with them. Many companies come to equity crowdfunding with an email database which has been just sitting there, gathering dust. If that is the case, it means they need a long lead-in time to re-engage end warm up that list to the idea of crowdfunding. “You need to educate your database around 6 months prior to raising capital”, says Tim Eisenhauer. OnMarket has their own investor database, but it is important to be able to activate your own crowd as well. This means having a sizable and engaged following which are excited about the prospect of coming on board as shareholders.

Finally, there needs to be a positive story to tell about the company, and their reasons for wanting to raise capital. The money needs to be used for growth – such as investing in new product development, expanding to new markets, and fueling promotion efforts. If someone is coming to OnMarket out of desperation because their bank balance is about to run out, they can sniff it out straight away. So, when approaching OnMarket, it will pay to demonstrate your traction and emphasize what great new milestones that equity crowdfunding will allow your company to accomplish.